- Office Space, screenshot
In the largest deal of 2016 so far, the agriculture giants Bayer and Monsanto announced Wednesday that they were planning to merge.
Bayer will acquire Monsanto for $66 billion at $128 a share, a significant increase from Bayer’s offer earlier this year for $122 a share.
In the announcement of the deal, the companies used the word that should make every Bayer and Monsanto employee nervous: synergies.
“Significant value creation with expected annual synergies of approximately USD 1.5 billion after year three; plus additional synergies from integrated solutions in future years,” the press release announcing the deal said.
In corporate speak, synergies indicate areas where investment bankers or the firms involved in the deal have identified redundancies or opportunities to make the combined company leaner, thus saving on costs.
In common speak, this usually means some layoffs are coming.
While synergies can also mean cutting redundancies in things like software and machinery, a large chunk of the savings typically comes from reduced employee headcounts.
For instance, if both firms have processing plants in one city, those can be combined into one. Or if Bayer and Monsanto have similar human-resource departments, the combined company’s new management can try to streamline the number of employees to handle the workload.
As we’ve pointed out, these synergies often aren’t what they’re cracked up to be and don’t help earnings after mergers. Many of these cost-cutting measures may never come to fruition. Also, a deal as large as this may not even happen, as the Department of Justice has rejected many similar megadeals this year.
For Bayer and Monsanto employees right now, however, that may be of little solace.